Assessing Nogales, Arizona's Major Border Port of Entry (BPOE)

There is no doubt that Nogales is Arizona’s major border port of entry (BPOE). In terms of basic measurements of commercial activity in 2017, Nogales accounted for 86% of all exports to Mexico, 87% of all imports from Mexico, 94% of imported Mexican fresh produce, and 84% of all northbound truck crossings. San Luis and Douglas, located west and east of Nogales respectively, together contributed 15% or less, on average, of cross-border commercial activity, while about 1% or less took place at Naco, Lukeville, and Sasabe combined. Total 2017 commercial activity for the six Arizona BPOE was: $16.6 billion exports, $10.9 billion imports (including fresh produce), $3.0 billion of imported fresh produce, and 400,160 northbound truck crossings.

When comparing like indicators of commercial activity over time, such as dollar value of goods or number of truck border crossings, local and regional economic practitioners and decision-makers can be pleased to see that trend lines suggest ever-growing activity. For example, since the Great Recession, exports to Mexico through Nogales BPOE in 2017 were 57.5% higher than in 2009. Imported value of goods from Mexico increased 41.5% in the same period; value of imported fresh produce increased 42.8%, while truck border crossings through Nogales port increased 20.6%.

Comparison with Usual "Competitors"

The sweet taste of satisfaction with the above indicators starts to dissipate once the comparison is made with Texas BPOEs, and most notably with two stars – Laredo and Hidalgo. From 2009 to 2017, dollar value of exports through Laredo increased 106.4%, total imports grew 129.1%, imports of Mexican fresh produce were up 233.5%, and the number of truck crossings increased 57.9%. At Hidalgo BPOE only exports grew at a slower pace than through Nogales, but total imports grew 95.8%, imports of Mexican fresh produce increased 289.6%, and truck crossings were up 47.9%. Clearly, all indicators of growth were more than double the Nogales growth rate; why the Texas ports and not Nogales, Arizona?

Figure 1 shows relative dollar value of trade (imports and exports combined) in 2017 through major southern BPOE. The circle size represents dollar value of trade, while colors indicate an increase (green) or a decrease (red) compared to the previous year. (Figure 1)

Figure 1. Trade Through Major Southern BPOE 2017

"Curse" of Geography

A number of previous articles (accessible at www.AZMEX.eller.arizona.edu/newsroom) hinted that geography plays an important role. Laredo and Hidalgo are sitting in the middle of the North American “auto alley,” which consists of a highly integrated network of auto makers, suppliers of automotive parts, and distributors who are responsible for the largest share of cross-border shipments. And then there are those irresistible avocados for which the shortest distance from growing fields in Michoacán to largest U.S. markets leads through Texas ports.

This is not to say that other factors are not at play. Investments in port infrastructure, ongoing modernization, lower wait times, flexible operating hours, as well as self-promotion, all are probable contributing factors for importers, exporters, and transporters when selecting port of entry.

Comparison with Competitors Closer to Home

While it is good to be challenged by the busiest and fastest growing ports, it is more reasonable to compare Nogales with other major ports with which Nogales shares similar geography. For example, border ports between northwest Mexico and the southwest United States, including Otay Mesa, Calexico East, Santa Teresa, and El Paso, have more in common in terms of general geographical characteristics. By keeping geography “constant,” that is, assuming that distances between origin and destination are more or less comparable, any deviation from expected average trend in volumes or dollar values may suggest other factors specific to each port. It is not unusual that delegations of regional economic practitioners and decision-makers are being sent to competitors to learn about “best practices” that might be contributing to their “above-average” growth.

Nogales and the Western Section BPOEs: Indicators of relative position

Based on the above discussion, Nogales’ indicators will be assessed against comparable commercial border crossings in the western section of the U.S.-Mexico border: Otay Mesa and Calexico East in California, Santa Teresa in New Mexico, and El Paso, Texas.

Nogales ranks 4th in U.S. exports to Mexico. In the western section, El Paso facilitated the largest value of exports to Mexico at $29.5 billion in 2017, almost three times the value exported through Nogales. In 2009, the first year of the recovery after the Great Recession, Nogales started at third place after El Paso and Otay Mesa, but by 2017 was replaced with Santa Teresa. (Figure 2)

Figure 2. U.S. Exports to Mexico via Western BPOE 2009-2017

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Nogales ranks 3rd in U.S. imports from Mexico. While El Paso was again in the leading position among the western BPOEs with $41.4 billion worth of imports from Mexico in 2017, Nogales has kept its third place ahead of Santa Teresa and Calexico East since 2009. (Figure 3)

Figure 3. U.S. Imports from Mexico via Western BPOE 2009-2017

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Nogales ranks first in imports of fresh produce. In the western section of the U.S.-Mexico border, away from Laredo and Hidalgo, Nogales has remained the principal port of entry for Mexican fresh produce. Although in 2017 the $2.8 billion of imported fresh produce through Nogales was lower than a year ago ($3.0 billion), this was twice as high as the value of imported fresh produce through second place Otay Mesa, and way ahead of Calexico East, El Paso, and Santa Teresa combined. (Figure 4)

Northbound truck crossings: Nogales on par with Calexico East. On average, about 85% of merchandise value traded between the United States and Mexico is transported by truck. Three out of five comparable western ports, including Nogales, also have railroad crossings. However, data on dollar value of freight transported by rail are not easily accessible, and thus only truck crossings are presented here. Based on dollar value of imports and exports, as shown in Figures 1 and 2, it comes as no surprise that Otay Mesa and El Paso facilitate the largest number of truck crossings in the western section, almost three times each the volume of truck crossings at Nogales. With 334,000 northbound truck crossings in 2017, Nogales trailed behind Calexico East with 360,000 in the same year. (Figure 5)

Figure 5. Northbound Truck Crossings via Western BPOE 2009-2017

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Uneven Pace of Growth

The above charts not only show that western BPOEs differ in magnitude, whether measured in dollar value of transported goods or number of truck crossings, but they also suggest that BPOEs differ by growth trends. To be able to better assess differences in growth rates, we will turn to index numbers. Using the first post-recession year 2009 as a base ( i.e. , 2009 = 100), growth trends are compared for each indicator.

With the exception of imports of Mexican fresh produce, all charts show an extraordinary growth rate in cross-border commercial activity at Santa Teresa BPOE. From 2009 to 2017, U.S. exports to Mexico through the port increased 577.0%; imports from Mexico grew 303.3%, and the number of truck crossings were up 100.1%. These growth rates are so high compared to the other four ports that they undermine the entire purpose of visual comparison. Index lines for Santa Teresa cause the lines for all other ports to basically coalesce. Only U.S. exports are shown (Figure 6) here as an example of the visual effect of Santa Teresa’s growth rate, but imports and truck crossings resemble the same picture.

Figure 6. U.S. Exports to Mexico via Western BPOE (2009=100)

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Santa Teresa as an "outlier." One of the reasons for Santa Teresa BPOE jumping to the top of index charts is the fact that it is one of the newest border crossings between the U.S. and Mexico, and thus in its first several years the base volumes (dollar values) were small. The port was built in 1992 to relieve pressure from the busy El Paso bridge just a few miles to the east.[1] It was built practically in the middle of empty land suitable for large-scale industrial and commercial developments. In combination with strong support by the New Mexico state government and investment of federal monies, the port became the primary BPOE in New Mexico. Without any intention to diminish importance of Santa Teresa BPOE for the economy of state of New Mexico, in a larger picture of the cross-border trade, Santa Teresa is actually an extension of El Paso BPOE in Texas. Therefore, by merging Santa Teresa statistics with that of El Paso BPOE, we remove the “outlier” effect and obtain a more appropriate frame for visual comparison of Nogales with major ports.

Trends to Watch: Is Nogales BPOE losing its appeal?

The analysis of four indicators’ growth trends since 2009 suggests that Nogales started to trail behind all major BPOE in the western section of the U.S.-Mexico border in each category.

U.S. exports to Mexico via western BPOE slowing down. With the exception of Otay Mesa, all major ports experienced slower growth in U.S. exports to Mexico since about 2015, but Nogales experienced the slowest growth. While the value of exported U.S. merchandise through Nogales in 2017 was still 57.5% above the 2009 level, it was below 2016 and especially below 2015 levels. (Figure 7)

Figure 7. U.S. Exports to Mexico via Western BPOE (2009=100)

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U.S. imports from Mexico up in 2017, except through Nogales. After early second fastest growth in facilitating U.S. imports from Mexico, Nogales started slowing down in 2014. By 2017, Nogales experienced the lowest growth rate compared to the base year 2009, unlike all other western BPOE. Calexico East and El Paso/Santa Teresa overtook Nogales in 2014, and even with a slowdown in 2016, these two ports rebounded in 2017 and moved to the top of the chart. Meanwhile, Nogales’ slowdown matched that of Otay Mesa on the bottom of the chart. (Figure 8)

Figure 8. U.S. Imports from Mexico via Western BPOE (2009=100)

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Imports of Mexican fresh produce: all other western BPOE catching up fast. While Nogales port still dominates the imports of Mexican fresh produce, all major western BPOE have shown exceptional growth rates particularly since 2013. Imports through El Paso/Santa Teresa doubled in 2017 compared to the 2009 dollar value (index value is 296.4, i.e. , 196.4%), while Nogales saw only 42.6% growth in the same period. Two other ports, Calexico East and Otay Mesa, also grew faster than Nogales. (Figure 9)

Northbound truck crossings: slowest expansion through Nogales. Not only has Nogales trailed behind other western BPOE in truck crossing dynamics, but in 2017 Nogales was the only port with a decline from year ago. Whereas truck crossings do not perfectly correlate with changes in volume and especially dollar value of transported commodities, they are a pretty good indicator of cross-border trade activity. In the case of Nogales, all indicators for 2017 – U.S. exports, U.S. imports, and imports of Mexican fresh produce – show levels lower than a year ago, which apparently correlates with a drop in truck crossings. Meanwhile, Otay Mesa and Calexico East, the two closest competitors, experience the fastest growth. (Figure 10)

Figure 10. Northbound Truck Crossings via Western BPOE (2009=100)

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Conclusion

Competition for preferable position as a gateway to and from Mexico among border cities started long before NAFTA was signed into effect. A major shift in the economic transformation of border cities was induced by the maquiladora program in the mid-1960s by which the Mexican government allowed U.S. companies to set up manufacturing assembly plants, initially in the narrow zone south of the border, and later throughout the entirety of Mexico. Early concentrations of maquila plants developed in the largest cross-border conurbations, such as San Diego, California – Tijuana, Baja California, and El Paso, Texas – Ciudad Juarez, Chihuahua. Nogales, Arizona – Nogales, Sonora also got a share of cross-border manufacturing, but at a much smaller scale. For one, the economies of Arizona and Sonora were (and still are) much smaller than those of California and Texas. And two, Arizona’s economic power hubs of Phoenix and Tucson, as well as Sonora’s Hermosillo and Empalme, are located further away from the border, unlike San Diego-Tijuana or El Paso-Ciudad Juarez. This is only one of many factors that contribute to the type, volume, and dollar value of commodities shipped across the border.

Increasingly, BPOEs facilitate cross-border flow of commodities from every corner of the North American region as the manufacturing within North America has become more economically integrated. Therefore, the type, volume, and dollar value of commodities shipped through BPOEs reflect developments in other states and their trade relationships with Mexico. Of particular interest are two developments that continue to impact Nogales port: first, geography of the auto industry, and second, increasing greenhouse production of fresh produce in Mexico. Until recently, major increases in commodity flows were associated especially with continuing manufacturing integration in the auto industry. And although Nogales facilitates significant commodity flow between Michigan and Sonora, it is still known to be outside the major “auto alley.” At the same time increasing greenhouse production of fresh produce in Mexico opened up new production regions that are less dependent on climate and thus diminished the relative advantage of the Sinaloa-Sonora-Arizona agricultural nexus in which Nogales BPOE held dominant position.

A peek into the composition of commodity flows may provide additional explanation why Nogales experiences different dynamics than other major BPOEs in the western section of the U.S.-Mexico border, but this will be a topic for another article. Stay tuned.